MBNA Corp. shares edged higher Thursday, extending a week-long rally despite an otherwise sluggish market, as analysts ranked the company the hottest during a sizzling period for credit card issuers.
The Wilmington, Del., company's stock gained 1.92% to $29.875 on "strong buy" recommendations from Prudential Securities and First Union Securities. Meredith Whitney, an analyst at First Union, said the recommendation is based on more than MBNA's strong second-quarter earnings - net income of $2.9 billion, up 259% from the year earlier.
"It is easy to recommend MBNA after a solid earnings report, but there is more here than just great earnings," she said. "They are the best monoline card provider, and monolines have cornered the credit card area once dominated by banks."
MBNA said it got 212 new affinity agreements, added 6.8 million customers, and more than 53 million new accounts during the first half of the year. In the past six months, MBNA has increased receivables by $13 billion, to $73 billion. "Organically, they are growing past Citigroup and really nipping at their heels for the top spot. They are the bellwether in a hot area," Ms. Whitney said.
Beyond the growth in credit card sales, MBNA said it increased its portfolio by 18% during the second quarter. An indicator that Jennifer Scutti, an analyst at Prudential, said is a strong indicator of third-quarter growth. She upgraded MBNA to a "strong buy" on Thursday and also named it her "single best idea."
But not all analysts are as enamored. Gary Gordon of PaineWebber issued a "neutral" recommendation Thursday. He said that with the terrific level of competition in the saturated credit card market it is hard for these companies to continue to grow.
"With such aggressive competition in the credit card industry it is hard for anyone to make money in cards, whether you are the No. 1 company or the No. 20 company," he said.
Mr. Gordon pointed out that consumer debt continues to set records. In May, credit card debt increased 12% while personal income climbed 6%. "This is all going to catch up to credit card companies," he said. "If debt rises at twice the rate of personal income, it doesn't take a genius to realize that that is a risky venture."
But Ms. Scutti argued that MBNA is a safe bet despite a possible economic slowdown in the third quarter.
"Even with the likelihood of higher unemployment and credit erosion within the industry, MBNA has been the only credit card company to show improvements in credit quality. Its dollar losses are flat and its loss rate is down," she said. "Based on my calculations, MBNA could see improvements through the remainder of the year."
Overall it was a sluggish day for banks. The American Banker index of the 50 largest banks declined 1.18%. Its index of 225 banks fell 1.38%.
Other banking companies that got positive comments on Wall Street did not fare as well, as the overall market tone worked against them.
Despite "buy" recommendations from analysts at Lehman Brothers, Wells Fargo & Co. fell 0.72% to $42.8125, Mellon Financial Corp. 4.34% to $37.1875, and Cincinnati's Fifth Third Bancorp 1.1% to $67.3125.